Accounts receivable can provide your company with a short-term loan, which is a great way to finance your business. When you extend credit to your customers, you’re essentially lending them money. The money they borrow from you is called accounts receivable.
Understanding the Process of Accounts Receivable
To finance your business using accounts receivable, follow these steps:
- Establish a credit policy. This will help you determine who is eligible for credit and how much they can borrow.
- Collect accounts receivable promptly. Don’t let customers delay payments beyond the terms you’ve agreed to.
- Use accounts receivable as collateral for a loan from a financial institution. This will give you the money you need to finance your business operations.
- Take out a factoring loan. Factoring loans allow businesses to sell their accounts receivable at a discount in order to get cash quickly.
- Invest in accounts receivable financing. This is a type of financing that allows businesses to borrow against the accounts receivable they have on hand.
An Involved Process – Factoring Accounts Receivable
When it comes to accounts receivable, one of the most important things to remember is to have a credit policy in place. This will help you to ensure that you are only doing business with customers who can afford to pay their bills, and it will also help you to manage your risk. There are a few key things that you should keep in mind when establishing your credit policy.
The first thing to consider is what your credit limit should be. You don’t want to extend too much credit to customers who may not be able to pay it back, but you also don’t want to turn away good customers simply because they don’t have a perfect credit history. You may want to consider basing your credit limit on the customer’s credit score, or on the amount of business they do with you.
You also need to decide what criteria your customers need to meet in order to be approved for credit. Some businesses require a minimum credit score, while others may only approve customers who have been doing business with the company for a certain amount of time. It’s important to find a policy that works for your business and that you feel comfortable enforcing.
Finally, you need to create a system for tracking accounts receivable. This will help you keep tabs on which customers still owe you money, and it will also help you keep track of late payments and other issues. Having a good system in place will make it easier for you to manage your accounts receivable and ultimately improve your bottom line.
For more information and help with this financial endeavor, contact Means Commercial Capital on the website. Their business experts have a collective century’s worth of experience in all matters of finance.